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The Lost Weekends

March 16th, 2013 - 1:26 pm

The NYT reports that the natives of Cyprus are restless.

ATHENS — In a move that could set off new fears of contagion across the euro zone, anxious depositors lined up at cash machines on Saturday in Cyprus to withdraw money hours after European officials in Brussels required that part of a new 10 billion euro bailout must be paid for directly from the bank accounts of ordinary savers. …

People crowding cash machines around Cyprus were stunned and angry at the decision. A crowd of around 150 demonstrators massed in front of the presidential palace late in the afternoon after calls went out on social media to protest the abrupt decision, which came with almost no warning at the beginning of a three-day religious holiday on the island.

Good timing, that a long holiday. Nobody in office to ask about “the surprise tax by the International Monetary Fund, the European Central Bank and the European Commission”. The “first to take money directly from ordinary savers. In the bailout of Greece, holders of Greek bonds were forced to take losses — but depositors’ funds were not touched.”

There used to be a TV drama called Touched by Angel.  But the angels done left town. So now it’s Touched By the IMF.

As the Business Insider reports, “Europe Announces Stunning Bailout For Cyprus — Bank Depositors To Get Instant 10% Tax Before Banks Reopen This Week”. In these enlightened times you “get” a tax like you should be grateful for it. Fair share and all that.

The interesting thing about the current financial crisis is that there’s apparently plenty of money. Pick up the papers and trillions and trillions of dollars are spoken of like they were nickels and dimes. Curiously no normal person  seems to see any of it.  But figures don’t lie. Notice how big the Federal Budget has gotten. Notice how much money has been borrowed. What did Bloomberg say, the Government can borrow an infinite amount? Infinite, man, them’s a big a big number. And how many times has the debt limit has been raised.

But where’s the money?   Why, there isn’t enough to pay for aircraft carrier deployments to the Middle East, there’s nothing for national defense. There’s not even enough to pay for tours at the White House. So where’s the money?

Your money ain’t your money but your money don’t know

But wherever it is there’s a need for more of it. So lawmakers have unveiled a proposal for a trillion dollar tax increase. Forbes reports: “Senate Democrats Unveil Their Own Budget Proposal; Push For Nearly $1 Trillion In Additional Tax Increases”. Yes. That’ll fix it.

The nearly $1 trillion in tax increase would be added to the $600 billion raised over the next decade through the year-end fiscal cliff deal, which increased the maximum rate on ordinary income and long-term capital gains/qualified dividends from 35% to 39.6% and 15% to 20%, respectively, on taxpayers with taxable income in excess of $450,000 (if married, $400,000 if single). Any additional hikes would also be in addition to the $1 trillion expected to be raised over the next ten years from the President’s signature Obamacare legislation, which along with other provisions, created an additional 3.8% surtax on the net investment income of taxpayers with adjusted gross income in excess of $250,000 (if married, $200,000 if single).

A trillion dollars. That ought to be good for at least a couple of weeks.

Here’s a thought. There’s really plenty of money out there, but you’re never going to see it. Happy days may be here again, but not necessarily for you. Walter Russell Mead explains why. He described how it worked for Detroit. “Detroit Dems Enrich Wall Street As City Goes Bust”.

Michigan made it official this week: Detroit can no longer survive without adult supervision. Michigan’s governor named Kevyn Orr, a DC bankruptcy lawyer, to handle the city’s affairs on an emergency basis as the deep blue city makes a last ditch effort to avoid the biggest municipal bankruptcy in American history.

During the long grim slide, much of Detroit’s population fled the implosion; those who remained suffered through declining city services. Schools, police, fire, infrastructure: all the vital services cities are supposed to provide have gone into steep decline.

But while the city’s mostly low-income and mostly African-American residents struggled to survive civic decline, the ill wind from Detroit blew somebody good: well connected Wall Street firms have feasted on the Motor City’s carcass.

Ever since the long death spiral began, Detroit has relied on periodic bond sales to keep its bills paid. The thinking was clear: borrow now, pay it back later when the city’s finances recover. Of course, Detroit’s finances never recovered, and now it’s on the hook for much of this borrowing, in addition to the fees that these banks charged.

So the money’s out there, just not in your pocket. It’s like one of those old cartoons where people are dividing up dividends at a table. One man holds the pile of money at a table of with nine others. He counts out the bills. “One for you, one for me. One for you, one for me.” The others know that something is wrong with this counting system, but they can’t explain quite why. “Whadda you mean it ain’t fair! It’s fair ain’t it. Here, let me show you! One for you, one for me.”

Some people are sure things ain’t right. Like Dr. Ben Carson, speaking at CPAC.

YouTube Preview Image

One for you, one for me, Dr. Carson.  Just watch out for them long holidays. Cyprus might be nice place to visit.


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Top Rated Comments   

# ?? ex Dagger

oh wait, there is no number to reference in this wonderful new PJM system.

Wretchard, why don't you strike a blow for humanity by leaving PJM if necessary and setting up your blog with a better interface? - you know like the one that existed until the recent "improvements". Or is this like ObamaCare; we just have to accept that it is the law of Justice Roberts (oops, I meant to say "law of the land") and learn to live with it?
1 year ago
1 year ago Link To Comment
As a crisis sharpens time horizons contract. There is no long-term. There is only short-term. Pretty soon there is only the very short-term. In the end it is "please God, let me live one more minute."

If you have ever dealt the with a con man who owes you money, you'll notice it goes like this: first promises of a big future. Later it is excuses for delays in payment. Still later, it is payments which come up short. After that comes, "I'm trying hard to get the money to pay you a partial."

Then it gets to the point where he hiding from you. In the end he's basically skulking from place to place, kiting whatever he can get his hands on, hoping to survive just one more hour ... one more minute.

I always thought it worked that way only for petty chiselers. I guess it can work that way for bankrupt too-big-to-fail institutions also.
1 year ago
1 year ago Link To Comment
All Comments   (68)
All Comments   (68)
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Not only can it happened here. It has happened here.

In 1933, Saint Roosevelt confiscated gold coins and bullion of American citizens. In return they were given $20.33 of paper money for each ounce of gold.

If they wanted to buy gold after that (which was illegal) they would have to pay $35 for each ounce of gold. Nice markup huh?

Holders of billions of dollars of US bonds that promised 49.19 oz of pure gold per $1000 of face value received paper money instead. Which somebody (foreign banks) could use 35 of to buy an ounce of gold. So the bonds were transmuted from the right to receive 50 $20 gold coins to a possibility of buying 28.6 oz of gold, if you were a foreigner. A 40% haircut.

10% seems downright civilized by way of contrast.

"Surely", you say,"the American people would not put up with such a theft. And certainly, the Supreme Court would find it it unconstitutional". Think again, white man. The people were as meek as little lambs. And Scotus swallowed it and said is there any thing else I can do for you sir?

Of course the Democrat peg boys who teach our children claim that this outrage was a an act of far sighted statesmanship.

No it wasn't. It was theft pure and simple, and that crime is the corrupt foundation of the Peoples Democratic Republic of the United States.

http://www.youtube.com/watch?v=svdrAHn_LGo
1 year ago
1 year ago Link To Comment
Oh joy, ZeroHedge reporting now that the financial geniuses pulling this on Cyprus are thinking of doing the same in Italy. Happy days are here again.

As many around here have speculated over the years, the big fat pile of cash sitting in American 401ks and IRAs is just too juicy a steak for the politicos not to reach in and cut off a few slices for themselves at some point. Cyprus may well be the canary in this banker created coalmine.

Though one wonders what Russia is up to. Only a few days back they announced that foreign banks could no longer open branches in Russia. Now they are getting -- we speculate -- a great deal of Russian money skimmed out of their Cypriot accounts.

I cannot predict how this will all end, other than "not well."
1 year ago
1 year ago Link To Comment
Hopefully the people that have been speculating about it have also been acting on their speculation and have been borrowing against their 401(k) or switched to a Roth IRA where they can withdraw the funds with no tax penalty.
1 year ago
1 year ago Link To Comment
The really funny thing is, that with all the stupid economic moves that the Obama Regime has pulled, if he just keeps his mouth shut and would quietly work with the Repubs on even making the appearance of reducing the deficit, the US economy and the NYSE and a lot of other things here would be big winners.

How much would you bet that Obama can keep his piehole shut and take some advantage of a bad situation? Because, in his heart, he is the kind of collectivist that would sieze bank accounts if he could, or needed to. And if the day ever comes when the US dollar is no longer the world's reserve currency, he will. Or whoever succeeds him.
1 year ago
1 year ago Link To Comment
So, what happens on the New York Stock Exchange Monday?

This bone-head move by the EU will undermine confidence in their ability to handle their own affairs as everyone with sense will move their cash out of Europe's banks.

US stocks have been doing well lately. largely because there's nowhere else to get safe yield. EU money will seek safety so cash will flow to US stocks so expect some bump.

Those US multinationals that have parked large cash holdings in EU banks might start to risk US corporate taxes to avoid confiscation risk.

If Obama and the Fed don't roundly criticize the Cyprus money grab, faith in the US banking system will also erode.

"Oh Troubles, come again no more!"
1 year ago
1 year ago Link To Comment
It has been better than 40 years since I first took macro and microeconomics, and even back then I would have recognized the abject stupidity or rank malice of this move.

The valued of a currency, any currency, rests upon a series of mutually agreed fables; all of which must be present for it to work and have value. Some of them are:

1. It is possible to obtain the goods and services that you need or desire through mutual agreed exchange rather than purely coercive force. This has the added advantage that you can safely turn your back on the person you just made the exchange with and not worry about him seeking vengeance.

2. That there can exist an agreed medium of exchange, with a consistent agreed value; to make those exchanges more complex than straight barter.

3. That the value of the medium of exchange is stable and will not degrade drastically in the short and medium term, and that it is redeemable at any time. That implies a relatively controlled supply of the medium AND that either law or custom will not change the value arbitrarily or arbitrarily seize it outside of whatever form of due process is accepted in the culture.

4. As an economy grows beyond the point where physical exchanges of the medium will suffice for trade, promissory bills of exchange will develop; first private and eventually issued by the government. Their continued value is contingent on 1-3 above being valid for them.

5. Eventually, the economy will grow to the point where just as bills replace specie, accounting entries [paper, then electronic] will replace physical bills. And items 1-3 above still have to hold for the accounting entries to retain validity as a medium of exchange.

Modern economies have far outgrown specie or bills of exchange. As an example, the total money supply circulating in the US is broken down into M-1 [physical currency and coin, traveler's checks, demand deposits and other checkable deposits], M-2 [M2 is M1 plus retail money market mutual funds, savings and small time deposits], and M-3 [M3 is M2 plus large time deposits, repurchase agreements with a maturity greater than one day at commercial banks and institutional money market accounts]. Interestingly enough, the Federal Reserve stopped publishing the M-3 data some years ago, about at the time that banks started accepting some really strange financial instruments as currency.

As of February 2013, US M-1 was $2.47 Trillion, of which $1.17 was actual currency and coin, the rest being various forms of checking and savings account. M-2 was $10.412 Trillion. M-3 is estimated by economists [due to the deliberate silence of the Federal Reserve Bank] as about $16 Trillion. 93% of our economy is accounting entries.

If a system of accounting entries running an economy is shown to be fraudulent or conditions 1-3 are violated, people first try to default to physical currency to try to preserve some of the value of what they have. Since there is not enough physical currency to run an economy so severely leveraged, people will abandon the currency [destroying its remaining value] and either seek to preserve value by trying to change it to another currency OR default to holding actual tangible goods of value that can be used or bartered.

CONTINUED IN REPLY BELOW
1 year ago
1 year ago Link To Comment
Subotai Bahadur said:

" It has been better than 40 years since I first took macro and microeconomics, and even back then I would have recognized the abject stupidity or rank malice of this move."

One could argue whether or not macro and microeconomic consequences carries much weigh with the socialist bureaucrats who run the EU.

It was well known that Russian gangsters were parking their money in Cypriot banks. The EU (like the United States) is effectively bankrupt and in dire need for hard cash. Reading between the lines, the EU bureaucrats saw an opportunity to steal billions from Russian criminals. They opted to grab the cash and were not concerned about the collateral damage.

Give the Swiss credit. When the United States began using hard ball tactics against the Swiss to end Switzerland's bank secrecy laws, the Swiss responded by telling their foreign depositors to take their money and run. The Swiss maybe ethically challenged but they know how to run a banking system.
1 year ago
1 year ago Link To Comment
Eggplant,

I'm really surprised you're buying the party line that Hagmar Schach...er, Wolfgang Schauble and the 4th Reich EUrocrats are selling.

I mean, about blaming the victims for the theft of 10% of their property Hugo Chavez-style. But for the sake of argument, let's say your assumption is correct that most of the Russian money in Cyprus is from 'gangsters', not legitimate corporations parking their cash in Cypriot banks for the same reason Gov-oogle at one time had something like half of its banked profits in Irish banks, blissfully alongside those of GE U.S. corporate income tax free.

Why oh why if Putin is the Dark Sith Lord who has dispensed polonium and bullets to dissidents and ex-KGB men left and right, would the EUrocrats dare cross him? Shouldn't they be worried when they step out of the BMW stretch sedan in Brussels that someone might pull up next to them and unload a clip, like what happened to that poor ExxonMobil executive several months ago? Should Nigel Farage's old whipping boy Mr. Von Rompuy be checking his tea for polonium too sir?

The truth is, nobody really knows if Russian deposits made up half of all Cypriot bank deposits or not. Nor do we know how many actual Russian oligarchs were tipped off a few days before the theft was announced this weekend. What we DO know is that the Cypriot banking system is effectively dead, killed off by malice when wiping out the bond and stockholders plus a Russian bailout contribution would've sufficed to spare the small savers under 100,000 euros. We also know that the EU guarantee of savers deposits under 100,000 euros, like its FDIC counterpart of 200,000 per saver per account, is a monstrous lie. And that the Establishment happy days are here again talking heads are willfully joining in the koolaid drinking, while the 'doom porn' purveyors Ann Barnhardt, Max Keiser, Gerald Celente, and many others have been vindicated.
1 year ago
1 year ago Link To Comment
or Merkel, she might get a bullet before her next elections, in fact the whole operation was managed under Germany scrutinity
1 year ago
1 year ago Link To Comment
After the smoke clears and dust settles, it will be interesting see how many local Cypriots had their savings stolen versus Russian gangsters. One can imagine a proforma amount stolen from local savings accounts while the entire balance is seized from Russian gangsters. What is the Russian gangster's recourse? Is he going to file a law suite at The Hague demanding restitution of the white slavery and gun running money that he tried to launder in Cyprus? My guess is the gangster will swallow the loss, write it off to education and stash his money in another country.
1 year ago
1 year ago Link To Comment
The Swiss caved.

Secrecy-classic is dead.
1 year ago
1 year ago Link To Comment
Swiss banks are a thing of the past unless you have the assets of a Saudi prince. The Luxembourg banks are not interested unless you're depositing a million dollars or more. I wonder if banks in Andorra are also a waste of time?
1 year ago
1 year ago Link To Comment
CONTINUED FROM ABOVE

The numbers will, of course, be different for the European Union. But given that they are farther down the road of deficit financing and socialism; it is reasonable to assume that they are even more leveraged than the US [not for lack of trying by the American Leftists] and in relatively worse shape.

The EU/IMF action in Cyprus has violated all three of the listed underpinnings of a currency. It matters not that they really, really, really promise that they won’t do something like that to anyone else. Europeans are used to their governments routinely lying to them; as we are becoming.

Normally, if a bank is in trouble; the idea is to reassure depositors that their money is safe and even if the bank is closed they will get it back. When a supranational organization that they have no control over comes in, closes your bank, and takes 10% off of the top of your money to start; who is going to leave money in the bank? Now expand it to EVERY country in the EU which is a fiscal football bat. Which is EVERY country in the EU. Keeping anything in the bank becomes folly. There is now the possibility of a continent wide bank run. This is arguably the stupidest financial move ever committed outside the US.

There is not enough physical currency in existence, in Cyprus or the EU, to maintain an economy. When people cannot get enough physical currency to run their personal and national economies; they will default to other currencies or tangible goods. And the Euro is dead meat. With the world as interconnected as it is, our dollar is in the line of dominoes.

Especially if you are in a southern European state, it is an act of suicidal folly to keep your money in any EU financial institution. And in the longer run, in Euros at all. Cyprus’ banks are closed till Tuesday due to a local holiday. The rest of Europe’s banks open Monday.

Keep thine codpieces buttoned. The ride may be getting bumpy soon.

Subotai Bahadur






1 year ago
1 year ago Link To Comment
The haircut is mathematically identical to an overnight debasement of the Cyprus-Euro exchange rate, when you acknowledge that each type of note is a separate currency -- backed by a separate sovereign.

Something like this is destiny for the rest of the rigid exchange rate Euro Zone.

At the heart of the EZ treaty is the anti-provision of cross sovereign debt/ banknote guarantees. In all the travail, Berlin has, so far, never agreed to pick up the tab for free spending (now insanely indebted) nations inside the EuroZone.

The media-collective have imposed a truth black-out WRT the nature of the whole deal.
1 year ago
1 year ago Link To Comment
So the EU is robbing the responsible people to pay for the irresponsible Cyprus government. The government of Cyprus does not have to downsize to help alleviate the crisis, so the crisis does not end put is put off for a bit more.

Well, it is what it is. People will have to realize that the government is basically living for themselves, and that people will have to fend for themselves and starve the government into responsibility---or oblivion.
1 year ago
1 year ago Link To Comment

# ?? ex Dagger

oh wait, there is no number to reference in this wonderful new PJM system.

Wretchard, why don't you strike a blow for humanity by leaving PJM if necessary and setting up your blog with a better interface? - you know like the one that existed until the recent "improvements". Or is this like ObamaCare; we just have to accept that it is the law of Justice Roberts (oops, I meant to say "law of the land") and learn to live with it?
1 year ago
1 year ago Link To Comment

Sounds like a good idea to me...
1 year ago
1 year ago Link To Comment
When the borrower sees bankruptcy as inevitable, he goes on one more spending spree, running up the last vestiges of credit, spending the last savings and filching the last dollar from the neighbor. Incidentally, this is also the behavior of the suicidal before there big day. Call it the last meal syndrome except in this case I believe we might have the first world war over sovereign debt. Make a deal with the devil and pay the vig or pay the price.
1 year ago
1 year ago Link To Comment
concerning Detroit and WRM's excellent article: He correctly identified the way that the Bankers have acted like vultures and sucked Detroit dry. I think that he could have gone even farther and pointed out the politics of *why* they thought, correctly so far, that this was such a safe bet.

When a person or organization borrows more than they can ever pay, the proper remedy in our system is bankruptcy, in which debts are prioritized and either paid out of available assets or discharged. Ordinarily a pile of unsecured loans based on theoretical future payments would almost certainly be given heavy writedowns (the proverbial "haircut") in any bankruptcy proceeding.

So why are cities, like Detroit, or countries like Greece, so terrified of the bankruptcy/debt default option, even though that is the only realistic way out from under their crushing piles of debt? Because of what else happens in bankruptcy, and this is that the moneylenders have literally been banking on.

What else happens is that when bankruptcy begins, then *Every* promise is up for grabs, including every union contract, every health care promise, every social security check. *Everything* can be rewritten. Now, in almost all of these cases, that's exactly what *should* happen, but the political party currently in power is terrified of allowing that to happen and will go to any lengths to keep it from happening - including paying off the vultures who are sucking the corpse dry, the bankers.

The bankers not only this, they have gambled billions of dollars on this. And the debtors can't simply default on their loans but keep the other accounts paid; they are so revenue deprived that the bankers can shut them down tomorrow if they stop playing the game. Note what the President of Cyprus said - "if we don't agree to this, every bank in Cyprus closes on Tuesday morning with no money for anyone."

The velvet gloves are now gone from the bankers hands - only the iron fists are left.

I was speaking mainly of Detroit, but it applies to nations as well. Why doesn't Greece simply default on its debts and go back to the Drachma? Because the geniuses in the Greek Government invested ALL of the funds of the Greek SS system and health insurance system in Greek debt. (somebody had to keep buying it, and they could force these systems to)
So if Greece defaults, the very *First* thing that happens is that every pension, SS payment, and health care insurance agreement vanishes in the very first hour. Brilliant trap you built for yourselves, guys - absolutely brilliant.
1 year ago
1 year ago Link To Comment
I like the Greeks and feel bad for them. However since joining the EU, they've been sucking money from the EU like a leech sucking blood. That wonderful bridge in the Gulf of Corinth and those freeways in the Peloponnesus were funded with Euros. PASOK's socialist paradise was funded with Northern European money .

A big problem for any swindler is how to gracefully make their exit after separating the sucker from his money. The Greeks are still sorting out how to make their exit.
1 year ago
1 year ago Link To Comment
I'll bet dollars to donuts that some of the ruling class will show up for work Tuesday without a shave.
1 year ago
1 year ago Link To Comment
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